From trailer park manager to head of the nation's largest hotel franchising company, Choice Hotels International president Don Landry defines success. Midas might be a little bit much of a description, but he's certainly done a lot of things right in a short period of time.
Landry prides himself on having come up through the hotel operations and management ranks, and he's spent the last 25 years familiarizing himself with just about every nook and cranny in the hospitality business.
In the end it paid off in early 1995 when Choice's co-chairmen Bob Hazard and Jerry Petit tapped Landry to run the company, based in Silver Spring, Md. The results, thanks to Landry and in no small part to a robust international travel market, was record revenues and profits last year. In the fiscal year ending May 31, Choice racked up a RevPAR (revenue per available room) increase of 5.7% over 1995. Also in the last 12 months, revenues grew 18.2% to $215.1 million, pretax income grew 27.1% to $61.8 million and 436 new franchise agreements were signed, up 21.4% over 1995. In fact, the results build on Choice's 14-year track record of pretax earnings growth of over 30% per year.
Focus on franchisees
As a former franchisee, Landry brings a unique perspective to the table when it comes to dealing with Choice's main constituency. "What's going on at Choice is an intense focus on our franchisees' profitability, and that's driving a lot of innovation," says Landry. "Starting about a year and a half ago, we did some rethinking of strategies and the common objective thread that tied everything together was licensee profitability. We firmly believe that is the foundation of our success. If we make our licensees profitable, they'll make us profitable. And it's working very well."
That rethink led to a redefined mission statement. "We're in the business of developing, packaging and delivering total success systems to our licensees. Everything that we attempt to do is designed to make it easier for the licensee to copy that success model," says Landry.
Keying off the new mission statement, Landry looked at Choice's branding strategies. "We defined each brand tighter than it had been, with a very specific direction of where the brand is going and its unique sales propositions for the consumer. We then looked at how we deliver that proposition in a very profitable way for the owner of the hotel."
One thing Choice is not, and that's stale. It is constantly coming up with fresh approaches to time-honored ways of doing hotel business.
On the product front, that innovation-track has led to cost- and time-saving systems like the Choice Picks food court and the K-minus banqueting system, which, not surprisingly, have met much success with franchisees because they are bottom-line oriented. "We've made some major enhancements to almost every one of the brands," says Landry.
Presently, Choice is the mother ship to seven brands -- Comfort, Quality, Econo Lodge, Clarion, Rodeway, Sleep and its latest brand launch, MainStay Suites.
A $100 million commitment
The creation of the new Main-Stay Suites extended-stay brand is perhaps Landry's most far-reaching strategy. The product typically offers 6.0-80 rooms on about two acres of land and will cost about $45,000 per room to build (excluding land). The cost per night is targeted at only $50 to $60.
Landry is commiting $100 million of Choice's own money to build about 20 MainStay properties across the country by the year 2000, simply to create a large enough impact in the market for name recognition and build up its economies of scale in the now-burgeoning extended-stay segment. The first MainStay just opened in Plano, Texas, just north of Dallas.
"We anticipate there will be between 150 and 200 (MainStay Suites properties) total by the year 2000. We have about 30 contracts signed right now, in addition to the 20 we intend to build, so we're pretty confident this will hit critical mass real quickly," says Landry.
The brand joins an incredibly packed crowd of new extended-stay launches in the last 12 months. "There have been a lot of announced extended-stay brands out there, and it's pretty easy to announce a brand, but it's pretty difficult to get the brand to reach critical mass," says Landry.
The way he sees it, the reality is that bigger is much better. "Franchising is a game of scale. That's why many of the extended-stay brands that have been announced will never make it. It's very unprofitable to run a franchise of 50 to 60 hotels. You have to get scale. You have to get to the 150 to 200 mark relatively quickly. And that's very difficult to do if you're strictly selling franchises. The individual developer really doesn't care whether your franchise is a great success five years from now. What he cares about is, is the one he's building right now a success," says Landry.
A crowded field
Entering such an already crowded field took some doing, but Landry insists the numbers are there to back up the decision.
According to Landry, demand for extended stay is exceeding the current supply by about eight-to-one. "All the independent research shows that extended stay is now making up about 12% of the total market, but the supply is minuscule. Entrepreneurs love those imbalanced situations where there's more demand than supply. The opportunity is huge because there's not an adequate product for that type of guest now and many of them are staying in the traditional hotel rooms. And the corporate apartment that's been around a long time is typically a 30-day minimum stay. Most of these assignments are not 30 days in length. So this has been very popular. Residence Inn is the most dominant player in the market, but Residence Inn's average rate nationwide is $85 or $90. This product is designed to come in at $50 to $60 depending on the location. It's a substantial savings with a similar product."
Landry cites the increase in international travel and the greater ease with which more people travel today as major factors that play into the success of the MainStay brand. "People think nothing of jumping on a plane from New York to Los Angeles to do business for a week and then flying back. As major business gets more complex there is a need for more and more specialists. People with specific expertise are being used in multiplek geographic locations because travel is easier. But that results in longer stays," says Landry. "An acronym that I love is MCP-SCTs. Mid-Career Pink Slip Consultant Types."
Landry says MainStays are targeted for areas with populations of over 50,000; with a strong corporate base. The concept also works well where there a; a large regional medical center since many patients must stay for multiple days at a time, and in university environments where there are graduate executive courses and visiting professors.
Focus on efficiencies
The other major reason for extended-stay's popularity is its efficency, which naturally leads to what is music to hotel operators' ears -- higher profit margins. "Some quick averages -- as an industry the full-service segment has a gross operating profit margin of about 26% to 30%. A limited-service hotel like our Comfort Inn or Sleep Inn is about 45% to 50%. This extended-stay approaches 60% in gross profit margins," says Landry.
To pump up those margins, Landry has devised a few simple efficiencies. MainStay rooms will be serviced by housekeeping only once a week instead of daily, but towel service will be available. Technology also plays a key role: Cheek in/check out is totally automated via a touchscreen computer near the front desk. Landry has high hopes for this umique feature. "We're introducing this with the MainStay brand, but I'm sure we will extend it to all of our brands in a very short period of time because the demand is there."
Another of Choice's innovations, and something it is well known for, is efficient, tightly fit room designs. For example, with its Sleep Inns, the company went to great lengths to make it feel larger than it really is. The concept is a simple one, but the net effect is to drive down construction costs per room.
"The MainStay is very efficient," says Landry. "It's substantially smaller (than a Residence Inn). In fact I've had Residence Inn developers come in and view the product and when I tell them the square footage they don't believe me. They insist on getting out their tape measures. Our basic room, which is a studio compared to the Residence Inn studio, is 100 sq. ft. smaller, which is a substantial savings in building costs."
While products and their design are one thing, if you ask Landry what has been his single greatest accomplishment at Choice so far. he says he has been like a coach building up a firm foundation that focuses on licensee profitability.
"We involved a multitude of Choice people in what we call SBOTs, Strategic Business Objective Teams. The buyin and the participation and the opportunity to contribute that creativity has been the reason that we've been able to launch more brands and break every record in the last year and a half. Obviously we've had help from the economy too. The focus when we came in was not pre-determined. When I came in I made a commitment, I said, `I'm coming into this job with a reputation for integrity and the only thing I'll promise you is I'll go out with that reputation.'"
"You've heard others say, `We just manage the brand.' My personal opinion is that was yesterday's strategy for franchising in the industry. Today's strategy for franchising is we take the size, the quality, the talent and the scale of Choice, and convert that into success systems that we can deliver to make everything faster and easier for the licensee. If I can be the maniac with that mission throughout the Choice organization and the catalyst for tapping into the great talent we have there, that would be my preferred mark on the company."
Landry's mark will become even bolder if he can somehow maintain the pace at which the company franchises. Right now over 50% of Choice's business comes from existing licensees. "A satisfied customer is still the best marketing plan in the world. We have a focus on growing the brands now in specific directions. What we're most proud of in terms of growth is not that we sold more contracts than ever before last year, which we did, but what we're more proud of is we have the largest share of new construction of any chain in the market. Nineteen percent of every hotel built in the United States last year was a Choice brand. We're not growing, as some of our competitors are growing, by converting everybody that will convert to our brand. We're not interested in taking other peoples' throwaways. We're much more interested in taking the new construction brand."
Spinoff from Manor Care
In the future, Landry could have even more prominence in the hospitality industry, thanks to the pending split of Choice Hotels International from the Manor Care Co. "As of October, we will be two separately traded stocks and technically the way we're doing that is the Manor Care name which is on all of the nursing homes will be the healthcare company, and the stockholders of Manor Care will get a dividend and the dividend will be a share of Choice stock. So now we'll have two separately traded stocks. Manor Care will be the healthcare company and Choice will be the lodging company, and we'll trade separately. So it's not an IPO because we're not issuing stock to raise cash, we're simply dividing the company."
In the end, the split will be a win-win for both companies. "They were put together years ago because both were relatively small and together they had a little more financial clout. Both are now huge, very successful companies and there is no need for them to be together financially. The healthcare analysts follow us, but that lodging part is not something they're comfortable with and the lodging analysts really don't follow us because we're perceived as a healthcare company. The lodging analysts have all applauded this move. We think this will create a lot of stockholder value," says Landry.
Brand differentiation
It is clear that one of the keys to future success in the hospitality business will be to cut through the clutter now littering the hotel-consumer's doorstep with an easily recognizable brand in convenient locations and a simple benefit that will lead to satisfied customers and their repeat business.
Landry recognized this early on so to differentiate Choice's brands in consumer minds and to drive more business to its 3,700 hotels worldwide, one of his first goals was a program of independent brand marketing.
"The consumer doesn't see Choice on any of the buildings. We moved away from advertising multiple brands together under the Choice banner and we moved to individual brand marketing with strong consumer messages rather than promotional messages. And it's paid off big time. Our fiscal year ending May 31 was our most successful year in our history. We broke every record there was to break in terms of revenue, in terms of profits, in terms of growth, in terms of customer satisfaction which we are most proud of. It validated our strategic direction," says Landry.
Choice's old strategy was to advertise multiple brands in the same advertisement, usually using a "suitcase" theme and focused on a promotional offer. A 1800-For-Choice reservations telephone number was given, and the operator would ask which brand the consumer wanted.
"Those ads were very successful in getting the phone to ring, but all of the ads you will see from now on are focused on selling the message. The message with Dennis Rodman (Chicago Bulls basketball player) is nobody has a better guarantee than Comfort Inn. The next ad will be Ricardo Montalban coming out of a suitcase talking about the deluxe continental breakfast. Again, we're focusing on the brand and its selling point -- free deluxe continental breakfast, 100% satisfaction guarantee. Quality and Econolodge will also be heavily advertised based on their specific brand attributes," says Landry.
So, how will the some 14 new hotel brands differentiate themselves from everybody else? And will the Choice strategy of focusing its attention on new construction win the day?
"You won't know unless they reach critical mass and can get a message to you, which is what Choice has done well. Again, with MainStay we'll get the message across because we're putting up $100 million to get that brand started. The key is to get the consistency in the brand. Sleep Inn is the most consistent brand in the industry right now. Every one of them is new-build, and there isn't any other brand that's doing that. We're now at 100 Sleep Inns and we have about 80 under construction right now, so that brand will double in a year. It's a highly successful brand. Comfort was really the brand that wrote the book on the luxury limited service brand. Comfort started free breakfast, Comfort started non-smoking rooms. So Comfort already has a position in the consumer mind."
Next in the pipeline
Now that Choice is on a roll, are there any plans for other new brands, such as four- or five-star full-service properties?
"A four- or five-star brand is not in the cards right now," says Landry. "It's still difficult to justify new construction, there's just not enough volume there. We do think it is time to begin the new-built Clarion phase, but with a new, much more efficient design than the full-service hotel."
Actually the next "big thing" for Choice may he a new lower-priced chain of meeting facilities properties.
"We think there is a huge opportunity for upper-priced meeting facilities. Instead of paying $200 a night at a Hyatt for your convention you can find a great hotel for $80 that has great meeting facilities and teleconferencing suites and everything you need to have a productive and efficient meeting at a great price. We think there is a roaring opportunity. That's exactly what Comfort did tO Holiday Inn. It came in with a better room product, a more attractive price, a better value to the consumer and luxury limited-service dominates the market. We think we can do the same thing with Clarion and the meeting facility hotel. But you have to break the old rules," says Landry.
You can tell Landry is enthused about the propects in front of him. "We're very excited about the spin-off. Choice has always been a company that has been highly innovative in developing new concepts and breaking some rules. And we truly believe in this spin-off, with a dedicated board of directors, with our own dedicated financial assets, we think this will accelerate it even more. I find that very exciting and energizing."